One for Us, Six for Britons!: William Knox D'Arcy in History of Iran

Wednesday, May 25, 2016

Albert Boghoziyan
University Professor & Expert on Economic Issues

A cursory glance at the contemporary history of Iran will reveal that although the black gold (crude oil) is counted among the God-given bounties of Iranians for many years, the colonialistic British government had been holding a firm grip on it for many years. That grip had been so firm that according to available historical evidence, the benefits of Iran's crude oil resources were divided at a ratio of 1:6 in favor of the British side.

Before the first oil gushed out of Iran's oil well No. 1 in Masjed Soleiman on May 26, 1908, the British national, William Knox D'Arcy, had already obtained an exclusive concession for the extraction and production of the black gold from inefficient Qajar kings. The Qajar kings had signed a humiliating and long-term contract with the British colonialists which allowed them to continue to keep their upper hand in Iran. According to that contract, in return for a small share of the profits gained through extraction and sales of this national wealth, which should have been allocated to development of Iran's infrastructures, the Qajar kings had allowed the British government to take long-term benefit of the country’s oil reserves.

In this way and under the rules of Qajar and Pahlavi dynasties on Iran, the most precious part of the Iranian natural wealth was, thus, open to plundering efforts of the British colonialists though frequent contracts which they signed with various Iranian governments. D’Arcy’s oil concession in 1901; another concession for giving exclusive rights of oil production in north Iran to the American Standard Oil Company in 1921, which was later revoked; giving the north oil concession to an American company in 1923; and later revision of D’Arcy’s contract and giving a new concession to the British company in 1933, were four humiliating contracts signed between Iran and major colonialistic powers at that juncture of the country’s history.

D’Arcy also obtained another concession from Iran's Mozaffar-en-din Shah Qajar according to which, the Iranian monarch had given him exclusive rights to the extraction, production and piping of oil and pitch across Iran except for five provinces of Azarbaijan, Gilan, Mazandaran, Gorgan and Khorasan, for 60 years. After securing the deal, D’Arcy promised to establish one or more companies within two years in line with that contract to implement the deal. He also vowed to pay the Iranian government some 16 percent of the contract’s profits as royalty in addition to 20,000 pounds in cash as share of the Iranian government from the contract.

William Knox D’Arcy used oil discovery in south Iran as a means of asserting the domination of the British government and companies on Iran's oil resources for half a century. Therefore, as soon as the first oil gushed out of an oil well in Masjed Soleiman city in southwest country, the British government emerged as the unrivaled colonialistic power in Iran and further strengthened its grip on the Iranian oil sector by establishing the Anglo-Iranian Oil Company.

The British government, which oversaw all the activities of D’Arcy in Iran from the very beginning and which was bent on securing its foothold in the oil-rich Iran, embarked on the establishment of Anglo-Persian Oil Company in 1909, that is, just one year after the beginning of oil extraction in Iran. The goal was to take hold of extraction, production, refining and export of the Iranian crude oil on an exclusive basis. The company was established with an investment of 2 million pounds and the export of Iran's oil started in 1913, only one year before the beginning of the World War I.

Due to increasing importance of oil as a source of fuel for the British Navy a year later, the country purchased 56 percent of the company’s stocks and appointed two plenipotentiary representatives to the company’s board of directors with the right of veto over all decisions. In this way, the D’Arcy concession was practically transferred to the British government.

On May 28, 1933, one of the most important colonialistic contracts was signed between the government of the then Iranian monarch, Reza Shah, and the Anglo-Persian Oil Company. According to that contract, which was known as the “supplement to William D'Arcy contract,” the British government was authorized to take advantage of Iran's oil resources until 1993.

Based on that colonialistic contract, the British offered Iran four shillings for every ton of crude oil in addition to a share of net profits of the company’s stockholders. The British company, according to the contract, had not only been made exempt from paying any taxes or duties, but also never allowed the Iranian government to audit its accountancy books considering them as “confidential.” As a result, the Iranian government, which was the real owner of the oil resources and a partner to the British company, had no choice, but to accept all its British partner’s claims. At the same time, the company never took any step for the professional education of its Iranian staff.

The difference between a contract that Iran signed with the British government in 1933, and the D'Arcy’s contract, was that according to the D'Arcy contract all the assets and properties of the company, which had been established in order to implement the contents of the contract, would belong to Iran. However, based on the contract signed in 1933, all the assets and properties of the company belonged to the British government. This contract, which has been recorded as one of many treacherous acts of the founder of the Pahlavi dynasty, would hold water for up to 20 years after its conclusion. It was only announced null and void during the political developments which led to the nationalization of the Iranian oil industry.

According to D'Arcy contract, the concession to exploit Iran's oil resources had been given to a British national, William Knox D'Arcy, in 1901; that is, six years before the Constitutional Revolution in Iran. The duration of the contract was for 60 years in which Iran had been considered entitled to a share of 16 percent of the contract’s profits as royalty. In addition, the Anglo-Persian Oil Company was committed to returning all its installations at the end of the contract to the Iranian government without asking for a dime. In practice, however, the company refrained from paying anything to Iran up to 1919 and turned a deaf ear to Iranian government’s protests and requests. As a final resort, the Iranian government dispatched a British financial advisor, called Armitage Smith, to London for the settlement of its accounts with the Anglo-Persian Oil Company. Smith succeeded on December 22 to work out an agreement with the oil company, but it was rejected by the Iranian government which refused to accept the agreement. Due to illegal meddling by the Anglo-Persian Oil Company, the Iranian government and nation were under tremendous pressures. At last, the duration of the contract was extended for 32 more years with the signing of another contract in 1933.

Iran's complaints were clear and unequivocal. The first complaint was about the issue of gold. In 1933, both sides had agreed that Iran's revenues per every ton of crude oil should be calculated on the basis of the gold price, so that, they would not devaluate. However, eight years after the beginning of the World War I, the Bank of England had fixed price of gold at the unreal rate of 8.40 pounds per ounce, which was about three pounds (eight dollars) lower than the global price. As a result, it paid the Iranian government only seven shillings per ton while the correct figure would have been 12 shillings per every ton of crude oil.

The company’s behavior about taxes was accompanied with the same degree of cheating and trickery. Firstly, the Anglo-Persian Oil Company refrained from paying Iran's share of the dividends before paying taxes to the British exchequer. This act, in fact, meant that the British government was exacting a tax on the Iranian government in clear violation of international regulations. Secondly, since the beginning of the war, the British government had levied an additional tax on total profits of the company which was paid by the Anglo-Persian Oil Company without paying Iran's share beforehand. As a result, Iran was practically obligated to pay for the war expenses of the British government. The amount of money which was subject to the two parties’ difference was staggering.

The Anglo-Persian Oil Company had paid roughly equal taxes to the governments of Iran and Britain in 1933. However, by 1949, it was paying Iran one million pounds in taxes while the British government’s figure stood at a whopping 28 million pounds!

Apart from that, the Anglo-Persian Oil Company was expected to pay 20 percent of its net profits to Iran which amounted to 1.047 million pounds in 1933. The company’s profits had soared every year and it should have paid 10.6 million pounds to Iran by 1949. However, since the beginning of the war, the British government had banned distribution of profits by all British companies in 1933, obliging them to credit their surplus revenues to a fund, which was called “public services” fund, in order to compensate for the cost of the war and reconstruction of the country after the war. As such, the company’s surplus revenues were poured into that so-called “public services” fund from 1933 onward and Iran did not receive more than 1.047 million pounds a year from the Anglo-Persian Oil Company.

Since the British government owned 51 percent of the company’s shares, it had unrestrained latitude to decide on everything as it wished. The method used to divide the dividends as well as to determine the tax which was to be sent to the British exchequer was ambiguous. A large part of the company’s revenues and profits had been spent on the “public services.” Apart from all those debates, there were also old differences as a result of the concession that the Iranian government had granted D'Arcy. One of them was the effort by the company to keep its books and records totally confidential. Of course, they were not confidential to the British government because it had two members on the company’s board. However, since Iran had no representative on the board, it could by no means obtain accurate information on the contents of the company’s books and other records. Therefore, it was not possible for the Iranians to control accounts related to the company’s revenues and profits in any way and, as a result, the Iranians did not exactly know how much of the company’s revenues and profits was theirs. This ambiguity had provided the British negotiators with a good opportunity to accuse the Iranian government officials of not having adequate knowledge of the contract.

Another deal was done in 1947 which was similarly disadvantageous to Iran. Sir William Fraser, head of the company [which had been renamed Anglo-Iranian Oil Company in 1935] had agreed to sell oil at discount rate to a number of American companies operating in the Middle East. The agreement was part of a broader deal between Washington and London which aimed to repay Britain’s wartime debt to the United States. That debt had nothing to do with Iran, but once again, the country’s national revenues were actually spent for the purpose of fulfilling Britain’s national goals.

Unfortunately, such differences were by no means limited to national issues. As for the general management of the company, its officials did not comply with the contents of the contract they had signed with Iran and their noncompliance inflicted heavy financial and political costs on the Iranian government. The Anglo-Iranian Oil Company refrained from paying the royalty on all oil products which were yielded as a result of its diverse operations. On the other hand, the company simply burned (and in more precise words, wasted) the natural gas, which came out of the oil wells as byproduct. It paid no attention to frequent requests by the Iranian government to inject the natural gas into oil wells or carry it to nearby cities through pipelines where the gas could have been used by the Iranian people as fuel for heating and cooking.

The Anglo-Iranian Oil Company also attached no importance to the provision considered by the Iranian side that all the Iranian staff of the company should be trained in order to subsequently take responsibility for various affairs of the company. In the meantime, the company imported foreign workers. In one instance, the Iranian Ministry of Finance received a request to issue visas for 3,000 unskilled Palestinian workers. At that time, Palestine was a British colony where unemployment rate was quite high. 
The net profits of the Anglo-Iranian Oil Company stood at 40 million pounds in 1947, but Iran's share of those profits did not exceed seven million pounds. At the same time, the British government and the company pocketed 33 million pounds through extraction and sales of the Iranian oil.

The walloping figures related to such humiliating contracts between Iran's Qajar and Pahlavi dynasties, on the one side, and the British colonialists, on the other side, prove beyond any doubt that although Iran owned the oil reserves, its share of the profits was six times lower than that of the British side. As the British side’s greed for gaining more profits out of Iran's oil reserves soared, prominent Iranian political figures like the then Iranian Prime Minister Dr. Mohammad Mosaddeq and religious figures like Ayatollah Kashani started to enlighten people of this unjust equation. As a result of such enlightenment, Iranian people’s struggles against the British colonialism bore fruit on March 20, 1951, when the Iranian parliament passed the oil industry nationalization law.

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